Micro Econ Final
For the purpose of calculating GDP, investment is spending on...
capital equipment, inventories, and structures, including household purchases of new housing.
Over time, people have come to rely more on market produced goods and less on goods that they produce for themselves. Ex: busy people with high incomes choose to hire cleaning people rather than clean their own house. By itself. this change has...
caused measured GDP to rise
If the natural rate of unemployment is 5.2% and the actual rate of unemployment is 5.7% then by definition there is...
cyclical unemployment amounting to 0.5% of the labor force
Which shifts aggregate demand to the right?
an investment tax credit, an increase in net exports due to something other than a change in domestic prices, an increase in the money supply
Discouraged workers...
are counted as out of the labor force but should be counted as unemployed.
Which of the following is correct? a)A higher interest rate reduces the quanity of goods and services demanded b) when money demand shifts right, the interest rates rise c) a higher price level shifts money demand right d) all of the above
d all of the above
When the Fed conducts open market purchases...
it buys Treasury securities, which increases the money supply.
structural unemployment
not voluntary. arises from a mismatch between skills/locations of workers and skill requirements/locations of jobs in the area
employed
paid employees(full and part time), self employed, unpaid workers in a fam business, people working but currently on vacation
unemployed
ppl temporarily laid off, people not working but currently looking
GDP does not include...
quality of goods, environment, leisure time, illegal non-market activity, household activity
Suppose there were a large increase in net exports. If the Fed wanted to stabilize output, it could...
sell bonds to decrease the money supply.
In the mid-1970s the prices of oil rose dramatically. This...
shifted aggregate supply left
Which group within the Federal Reserve System meets to discuss changes in the economy and determine monetary policy?
the FOMC
The supply of money increases when...
the Fed makes open market purchases
inflationary gap
the amount by which AD exceeds AD level needed for equilibrium at full employment w/o inflation
recessionary gap
the amount by which AD falls short of the level needed for equilibrium at full employment w/o inflation
Which event would cause a movement upward and to the right along the supply curve for tomatoes?
the price of tomato rises.
Suppose banks desire to hold no excess reserves and hat the Fed has set a new reserve requirement of 10%. If you deposit $9,000 into First Jayhawk Bank...
the require reserves increase by $900, assets and liabilities both increase by $9,000, Jayhawk bank will be able to lend out $8,100. ($9000x(.10)=$900 $9000-900=$8100
Excess reserves
total reserves-required reserves
velocity of money
v=(PxY)/M PxY--NGDP or its Price level X RGDP M--money supply
frictional unemployment
when workers voluntarily spend time searching for attractive jobs that best set their skill set
In the economy of Wrexington in 2008, nominal GDP was $18 billion and the GDP deflator was 120. What was Wrexington's real GDP in 2008?
15 billion NGDP/deflator X100
suppose that the adult population is 4 million, the number of unemployed is .25 million, and the labor force participation rate is 75%. What is the unemployment rate?
8.3% 100x(#unemployed/# in labor force)
Assume that an economy's income multiplier is 4. If this economy is in a short run equilibrium at RGDP=$2000 billion with high levels of inflation, then which one of the following actions will eliminate the 'inflationary gap' and bring the economy down to a full employment equilibrium without inflation at RGDP=$1500 billion?
$125 billion spending cut
In the economy of Wrexington in 2008, exports were $500, GDP was $6400, gov't purchases were $1500, imports were $600, investments were $2000. What was Wrexington's consumption in 2008?
$3000 Consumption=Investments+Govt purchases+(exports-imports)-GDP C=2000+1500+(500-600)-6400
If the reserve ratio is 4%, the $81,250 of new money can be generated by...
$3250 of new reserves. 1/(.04)=25 $81250/25=$3250
A tax multiplier equal to (-4.30) would imply that a $100 tax increase would lead to a...
$430 decline in national income. (-4.30x100)
How to get Real GDP
(NGDP/deflator)X100
When national income increases from $300 billion to $400 billion, national consumption increases from $300 billion to $360 billion. The MPC is...
0.6 60/100=0.6 (change in consumption/change in income)
Suppose over some period of time the money supply tripled, velocity was unchanged, and real GDP doubled. According to the quantity equation, the price level is now...
1.5 times its old value
deposit multiplier
1/LRR
GDP deflator
100X(NGDP/RGDP)
labor force participation rate
100X(labor force/adult population)
unemployment rate
100X(unemployed/labor force)
Suppose a basket of goods and services has been selected to calculate the CPI and 2002 has been selected as the base year. In 2002, the basket's cost was $50, in 2004, the basket's cost was $52, and in 2006, the basket's cost was $54.60. The value of the CPI in 2004 was...
104.0 100x($52/$50)=104
Bagels I Donuts 40 150 60 ? 80 50 If the PPF is bowed outward then what is the value of ?
125
An increase in government spending initially and primarily shifts...
AD to the right
Which of the following properly describes the interest rate effect that helps explain the slope of the AD curve?
As the price level increases, the interest rate rises, so spending falls.
Fiscal policy
Gov't spending & taxation policy to achieve full employment, price stability, economic growth through influence on the AD curve
Suppose AD shifts to the left & policymakers want to stabilize output. What can they do?
Institute an investment tax credit or increase the money supply.
Suppose Jim and Tom can both produce baseball bats. If Jim's opportunity cost of producing baseball bats is lower than Tom's oppurtnity cost of producing baseball bats, then...
Jim has a comparative advantage in the production of baseball bats.
Demand deposits are included in...
M1 and M2
MPS (marginal propensity to save)
MPC + MPS=1
What would cause prices to fall and output to rise in the short run?
Short run aggregate supply shifts right
labor force
Unemployed+employed
tax multiplier
[-(MPC/1-MPC)]
Which change would not shift the demand curve for a good or service?
a change in the price of the good or service
money...
allows greater specialization, makes trades easier, is more efficient than barter
If the reserve ratio is 15%, and banks do not hold excess reserves, and people hold only deposits and no currency, then when the Fed sells $65 million of bonds to the public, bank reserves...
decrease by $65 million and the money supply eventually decreases by $433.33 million. (1/.15)(65)=$433.33 mill
If the supply of a product increases, then we would expect...
equilibrium price to decrease and equilibrium quantity to increase.
For an economy as a whole, income must equal expenditure because...
every dollar of spending by some buy is a dollar of income for some seller.
during a recession the economy experiences...
falling employment and income.
How to calculate CPI
fix basket, find prices of what things in basket cost, compute basket's cost (priceXquantity), choose base yr & compute index (100Xcost of basket this yr/cost of basket in base yr), compute inflation rate ((CPI this yr-CPI last yr)/CPI last yr)X100
Assume that an economy's income multiplier is 2 and the SR equilibrium at a RGDP of $500 billion. If the gov't wants to eliminate the 'recessionary gap' and attain full employment at RGDP of $600 billion, while maintaining a balanced budget, it must choose which as an option?
increase gov't spending and taxes by $100 billion.
crowding out effect
increase in gov't expenditures, increases the interest rate, reduces investment spending
in 1991, the Federal Reserve lowed the reserve requirement ratio from 12% to 10%. Other things the same, this should have...
increased both the money multiplier and money supply.
If the government collects $10,000 in tax revenue and turns around and spends $10,000 to build a new road, and the MPC is 0.5, national income...
increases by $10,000.
Suppose that when the money supply changes, real output and velocity do not change. Then a 2% increase in the money supply...
increases the price level by 2%
